Mining Company Abandons $19 Billion Pact; Move Is Setback to Islamabad's Effort to Establish Beijing as Foil to U.S.

A Chinese mining company pulled out of what was to be Pakistan's largest foreign-investment deal because of security concerns, complicating Islamabad's effort to position its giant neighbor as an alternative to the U.S. as its main ally.

An official at China Kingho Group, one of China's largest private coal miners, said on Thursday it had backed out in August from a $19 billion deal in southern Sindh province because of concerns for its personnel after recent bombings in Pakistan's major cities.

Zubair Motiwala, chairman of the Sindh Board of Investment, acknowledged the cancellation of plans to build a coal mine, power and chemical plants over 20 years. But he said he was hopeful Kingho would reconsider.

Pakistan began playing up its friendship with China after the U.S. killing of Osama bin Laden in Pakistan in May sent relations between Islamabad and Washington into a tailspin.

But China's response has been lukewarm so far, suggesting that Islamabad may remain dependent on billions of dollars in military and civilian aid from Washington for some time to come.

Pakistan Prime Minister Yousuf Raza Gilani used a visit this week from Meng Jianzhu, China's minister of public security, to promote the friendship, which Mr. Gilani said was "higher than mountains, deeper than oceans, stronger than steel and sweeter than honey."

Army chief Gen. Ashfaq Kayani thanked Mr. Meng, who pledged $1.2 million in aid for Pakistani law-enforcement agencies, for his country's "unwavering support."

The gushing compliments contrasted recent U.S.-Pakistani rhetoric. Islamabad warned last week that the alliance could be in jeopardy because of U.S. accusations of Pakistani support for militants.

China has backed Pakistan, its largest export market for armaments, for many years as a strategic counterweight to India in the Indian Ocean region. The countries have developed military hardware together, such as the JF-17 fighter jet, and China is helping Pakistan build civilian nuclear reactors.

Beijing constructed and financed Pakistan's Gwadar port, opened in 2007, as part of plans to develop a road and rail transport corridor from China's northwest to the Arabian Sea.

In many cases, though, China's support has stopped short of what Pakistan had hoped, while Islamabad, in Beijing's eyes, has failed to live up to its promises, including to ensure security for investments. A number of Chinese workers have been killed in Pakistan in the past decade, some of them in troubled Baluchistan province, where armed separatist insurgents have opposed Chinese investments.

Pakistan's army has been lobbying for a formal defense pact with China in the wake of the bin Laden raid, a Pakistani government official said. Such a pact would draw China into any conflict involving their ally and likely anger the U.S. and India, Pakistan's regional rival.

China hasn't commented on the matter. A spokesman for Pakistan's military declined to comment.

"The Chinese wouldn't go in for that. It's too much to put on their plate when they can't ensure how much they can control their own ally," says Pakistani military analyst Aisha Siddiqa.

Beijing is also keen to balance its support for Islamabad with a renewed push to improve relations with India, a growing trade partner. And China is eager to avoid tensions with the U.S. that could disrupt a first official visit to Washington early next year by Vice President Xi Jinping, who is expected to take over as Communist Party chief in 2012 and president in 2013, diplomats and analysts say.

The U.S., meanwhile, wants China to engage in a dialogue on Pakistan as Washington looks for ways to press Islamabad over its ties with militants. Secretary of State Hillary Clinton made the request directly to China's Foreign Minister Yang Jiechi in New York on Monday, according to a senior State Department official.

Han Hua, an expert on South Asia at Peking University, said China viewed Pakistan as an increasingly important strategic partner given the imminent withdrawal of U.S. troops from Afghanistan. "That doesn't mean China wants to replace the U.S. in the role it played. It's not a zero sum game," she said.

Some deals are going ahead. Pakistan last week signed a preliminary agreement with another smaller Chinese company, Global Mining Co., to invest $3 billion in a mine and power project close to the one that Kingho canceled, Mr. Motiwala said.

Other Pakistani requests for China to increase funding of infrastructure projects haven't progressed.

In May, Pakistan's defense minister said China had agreed to take over operation of Gwadar, which is doing little business as a commercial port, and that Islamabad has asked China to build a base there for Pakistan's navy.

China has remained silent on the issue. Pakistani officials involved in Gwadar's operations say there is no sign China will take over. The officials say they have been frustrated by China's failure to finance and build a road network to connect the port to the rest of the country.

Some Chinese experts say Gwadar's cut-off location in Baluchistan makes it less attractive as a military base or as a transit point for China's oil imports, given the high cost and security risk of piping them across some of Pakistan's least stable regions.